How retailing lost its sparkle

IT became obvious last week - if it had not been obvious before Christmas - that it was going to be a poor season for retailers. Evidence from the companies that have reported so far shows beyond doubt that customers were slow to start spending and were more canny than ever, using the internet to shop around for bargains and demanding discounts. Some retailers had a reasonable time, but most did not.

Traditionally, the High Street does a quarter or more of its annual trade in the six weeks before Christmas. The question it urgently needs to ask is whether there were special factors behind this year's sales slowdown or whether it marks a fundamental and probably permanent shift in consumer behaviour away from the excessive spending and consumption that has come to mark Christmas in recent years.

The easy answer, and for retailers in many ways the comforting one, is that we are simply seeing Bank of England Governor Mervyn King's medicine doing its work. As well as seeking to stop the rise in house prices, the monetary policy committee, which he chairs, has been keen to slow the growth in consumer borrowing for consumption. It could be that the squeeze brought about by rises in interest rates simply made its mark this season.

It is also possible that, while people still have money in their pockets, they are less confident and carefree about spending it than they were 12 months ago. The results of recent MORI surveys, published in yesterday's Observer, drew attention to the widening gulf between what people feel about their own situation and what they feel about the economy as a whole.

Thus, almost two-thirds of company bosses say they expect their companies to do better over the next 12 months but fewer than one in five think the general economic condition of the country will improve, and more than a quarter think it will get worse.

Responses differ with age, as one would expect. In aggregate, however, twice as many predict that their personal financial situation will get better as think the overall economy will improve. Clearly, the prospect of higher taxes after the expected May General Election and the growing perception that public sector spending provides neither wealth creation nor value for money are beginning to take their toll on confidence. That change of mood might be expected to damp down the desire to spend.

There is growing evidence, too, that people now want to spend their money in different ways. It has been noted for some years now that mobile phones eat up a significant slice of spending among young people, leaving less for them to splurge in traditional ways. By the same token, it was obvious from the absence of traffic in London last week that large numbers of people had decided to make a two-week break of it and go abroad for a holiday.

This is bad news for the High Street because it marks a major change in consumer preferences. People heading for Heathrow on Christmas Eve do not travel laden down with presents. Nor do they blow large sums on parties. That money gets spent overseas instead - in other countries' hotels, bars and High Streets.

All this could be seen as part of the ebb and flow of economic life, and of confidence, and the trading-up by people to higher-value items as they get more affluent and sophisticated. But some sociologists also argue that there is a more fundamental change under way.

This thesis suggests that the fragmentation of society, the break-up of the family unit, the dislocation of the workplace with its lack of job security and the ever-increasing pace and pressure of life are not leading to greater happiness or satisfaction.

Various surveys over the years have confirmed the finding that when people move from poverty to a modest level of affluence there is a major increase in happiness. But further greater slices of income produce less and less additional satisfaction to the point where more money makes no discernible difference to happiness.

Instead, because they have more to lose, people tend to feel more insecure. The extra pressure seems not to bring a pay-off in extra happiness but instead feeds a growing sense of doubt about 'what's it all for?'.

There is research to suggest this feeling is growing throughout society, though whether it is temporary or permanent, deep-seated or shallow, is less clear. What would worry me as a retailer, though, is that the most obvious sign of it is a reaction against conspicuous consumption and spending for the sake of spending. Perhaps this is one reason why Christmas this year was flat. If it is, it suggests that succeeding Christmases will be even flatter.